Soybeans, corn & wheat update

March 30, 2023 | The Simpson/Caputo Group of RBC Dominion Securities


2023 may be a new year but, the volatility for corn, soybeans and wheat has continued.

As we head into spring, all eyes will be focused on the U.S. growing season. After two years of La Niña-influenced drought, trade will likely remain sensitive to longer-term weather forecasts. On top of supply side forecasts, demand shifts in world markets will add complexity to outlooks this growing season.

For soybeans, the 2023 growing season starts out once again with tight old crop-ending stocks and strong crush margins. La Niña once again brought a mixed bag of weather for South America, with historic drought hurting the Argentinian crop while neighbouring Brazil managed to pull off a massive crop. Going forward, it will be interesting to keep an eye on the U.S. growing season and world demand. Regarding the former, the U.S. has an opportunity to grow ending stocks year-over-year, presuming the growing season cooperates. One substantial difference year-over-year will be the exit of La Niña, which historically corresponds with a drier U.S. Midwest. Although it is still early, and predicting weather is fickle at best, this could help improve the odds of a favourable growing season for the U.S. On the demand side, the renewable fuel push and strong crush margins remain the largest demand drivers for the soybean market. Keep in mind, however, that this renewable fuel capacity will not be filled solely with soy oil as an input. Growth will also come from other veggie oils, waste products and fats, as well as the EPA-expanded wheat products that qualify to be used to create renewable fuels and generate RIN credits.  This is still positive for the soy complex, but the benefit is not as simple as 1-to-1 demand. One area of concern, however, heading into 2023 from a demand point of view, will be exports. U.S. exports have been strong the past two seasons, led by sales to China. However, this came after two Brazilian droughts. Now that Brazil has pulled off a record crop, there is a risk of China not returning to the U.S. as a buyer of soybeans until much later into the year. This scenario will be worth watching this summer and fall.

Similar to the soybean market, corn will start the 2023 growing season with tight old crop-ending stocks. Based on acreage, it does look like the U.S. will have the ability to build ending stocks on corn if mother nature can cooperate. The demand side of the balance sheet will come under a bit more scrutiny this growing season. First off, exports could be more of a wild card after China signed a new corn export deal with Brazil. Chinese purchases during the March through June time frame will be important to watch to see if China still takes U.S. corn in the quantities it has in the past year – or if they will opt to shift more to Brazilian origin. While weather for Brazil’s second crop will of course be a determining factor, Chinese purchases of Brazilian corn have already started out at a strong pace since the signing of the deal. On the domestic side, relatively cheaper wheat in comparison to corn, along with smaller livestock herd, could weigh on feed demand year-over-year. Corn use for ethanol demand looks to be steady for now, but gasoline consumption has been lower year-over-year and concerns over driving habits into the summer, if recessionary fears grow, will be key to watch going forward.

As for the wheat market, to say 2022 was volatile would be an understatement! The Russia / Ukraine war, along with a poor U.S. winter wheat crop, led to new all-time highs in the price of wheat early in the year. Later, prices did nothing but disappoint as the market grappled with better-than-expected grain movement from the export corridor agreement as well as a larger Australian crop. 2023, however, looks to have its own set of challenges facing the wheat trade. Although the export corridor has been more successful than initially suspected, we are now into the 2nd year of war and plantings out of Ukraine are most likely going to fall year-over-year. And if war intensifies, a further risk will be how much can be harvested this summer and what other surprises/ supply disruptions could potentially be thrown at this market. Both will be key things to watch, especially with the smaller-than-expected Argentinian crop that was harvested this year. On the U.S. front, winter wheat conditions were the worst in history heading into dormancy. Correlation between pre dormancy crop conditions are poor, but without further demand reduction we need a near trend yield crop to prevent further stocks contraction. A key going forward will be to watch spring/summer weather, crop conditions and harvest yield data, along with export and feed demand.